Event ReportsPublished on Aug 02, 2014
India neither has a well-defined bankruptcy legislation for businesses to close down systematically or special courts to take care of such issues; and, as a result the process becomes slower, says former Revenue Secretary M.R. Sivaraman.
Lack of bankruptcy law making process slower, says expert
The 2014 Union Budget is a disjointed one and lacked focus in several aspects, according to Mr. M R Sivaraman, former Revenue Secretary to the Government of India.

Initiating a discussion at the ORF Chennai Chapter, Mr Sivaraman first outlined the economic scenario in the country and of the States. He said nearly 13 States have shown a budget surplus while many others have a deficit of around two percent which is lower that the global average of three percent. He said that the claim of of a 4.1 percent deficit for the Centre was based on wrong means of calculation, as this figure does not take into account the deficits shown by the States.

Global indices and ease of business

Mr. Sivaraman listed out several indices in which India's ranking is abysmal. It ranks #134 in the ease of business. He attributed it to several factors, including bureaucratic delays in granting clearances and approvals. India has over 50 pieces of labour legislation enacted by the Central Government and hundreds of others by individual States. Easing of labour laws will attract foreign investors to set up units in the country.

India neither has a well-defined bankruptcy legislation for businesses to close down systematically or special courts to take care of such issues; as a result the process becomes slower. Mr. Sivaraman said though the idea for bankruptcy legislation was mooted in 2001 and a report was prepared, Finance Minister Arun Jaitley has made no announcement in this regard in his maiden budget.

When it comes to enforcing contracts, India ranks almost at the bottom of the ranking list, at #186. This is one of the main reasons for foreign investors to stay clear of India. The country ranks #158 with regard to taxation. The unpredictable nature of tax laws in the country has been a source of concern for foreign investors.

Inflation and food security

In the past couple of years India had a very high rate of inflation, to the tune of 8.3 percent. It was the third highest in the world and India happened to be the only major economy with such a high rate of inflation.

The current budget proposes some reformation of the Food Security Bill, but lack clarity on the same. Mr. Sivaraman said that the Government held the largest pile of food grains, 70 million tonnes. He claimed at least 20 million tonnes remained as surplus with the Government. Food security requirement, he said, is not as much as the Government speculates it to be. When it comes to procurement of food grains, the middle men involved in the business take a bigger cut. This also drives up the price.

He also pointed out that there was a need to restructure the Food Corporation of India to exist as a state-specific body. With regard to the production of rice and wheat, Mr. Sivaraman said India falls short of even the global average.

Taxes and expenditure

The speaker said there had been not many changes in individual taxation rates in this year's budget. GST, a concept that has been doing the rounds for some time now, received a passing mention by the Finance Minister, and lacked clarity. He pointed out that Indian Government spends roughly 10 percent of its revenue in salaries and pensions of government servants as compared to 40 percent and above in some countries in the West. As with most other issues in the budget, he said, the expenditure commission was merely mentioned and contained nothing in detail.

Though some schemes lacked clarity, some others were ambitious. The budget has proposed a 24X7 power supply for irrigation with a separate distribution line. Mr. Sivaraman said some states have been following this concept and pointed out that this 24X7 power supply would not come free of charge.

The government also proposed a Rs. 5000-crore fund for warehouse infrastructure that is supposed to help in storage and preservation of agricultural produce. Rs. 10,000 crores has been ear-marked to set up six textile mega clusters, one of them in Tamil Nadu.

Mr. Sivaraman, however conceded that no government would be ready to make revolutionary changes when it comes to reduction in expenditure.

Infrastructure, navigation, social sector

With regard to the NHAI, a report was brought out several years ago explaining the needs to grant autonomy to it. Mr. Sivaraman said the Finance Minister could have boldly announced this move. The budget speech also made a mention on the concept of direct sale of farm produce by the farmers themselves.

Pertaining to industries, a National Corridors Authority is to be set up in Pune, to monitor various corridors across the country. The limit for SME has also been increased, in order to attract entrepreneurs to establish small and medium enterprises.

The Finance Minister had announced the setting up of an e-platform to aid in obtaining clearances for industries. This move, Mr. Sivaraman said, would speed up the bureaucracy. Among others rural housing scheme and ensuring proper facilities for sanitation were mentioned in the budget speech.

The budget also made a mention to make the river Ganga navigable. However, Mr. Sivaraman said, it is much difficult to do so owing to the fact that it becomes necessary to obtain clearances from the various States through which the river flows.

Mr. Sivaraman said the first thing to do in budget-making at present would be to have a detailed road-map, for working towards bringing Indian into the top 50 of the global indices, establish courts within six months to take care of cases pertaining to bankruptcy and reduce the number of labour laws.

(This report is prepared by Ramalingam Va, B.A. (Journalism & Mass Communication), S R M University, Chennai)

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